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CPO Fined US $1 Million for Making Prohibited Loans and Advances to CEO From Funds’ Assets

Duet Asset Management Ltd., a Commodity Futures Trading Commission-registered commodity pool operator, agreed to pay a fine of US $1 million to the National Futures Association to resolve charges that the firm caused commodity pools it managed to loan or advance money to entities affiliated with Henry Gabay, the firm’s chief executive officer and a principal. Such loans, charged NFA, were prohibited by an NFA rule that makes it impermissible for a CPO to authorize a commodity pool to directly or indirectly make a loan of pool assets to the CPO or any other affiliated person or entity. (Click here to access NFA Rule 2-45 and here to access NFA Interpretive Notice 9062 entitled “Prohibition of Loans by Commodity Pools to CPOs and Related Entities.”) Duet was also charged by NFA with delaying the repayment of overpaid management fees contrary to the terms of two of its commodity pools’ private placement memoranda; overvaluing an illiquid security in two commodity pools’ financial statements which caused an illiquidity circumstance at one fund that resulted in a pension plan and three other pool participants receiving an alternative to cash when they attempted to redeem their shares in one of the pools; not maintaining mandatory books and records; not timely filing quarterly pool reports and annual financial statements with the NFA as required; and permitting Mr. Gabay to act as a salesperson for Duet without being registered as an associated person. As part of its settlement, Duet Asset Management was also required to provide a written notice of the NFA disciplinary action to all its former, current and futures customers, and to cause Mr. Gabay to be registered with it as an AP. Duet, which is headquartered in the UK, is also a CFTC registered commodity trading adviser and swap firm, and an investment adviser registered with the Securities and Exchange Commission. Additionally, the firm is authorized by the UK Financial Conduct Authority to provide regulated products and services. All entities affiliated with Mr. Gabay previously repaid all loans to Duet run funds, although in some cases without interest or fees, said NFA.

Did You Know?: The Financial Conduct Authority and the Prudential Regulation Authority in the UK maintain an online register – The Financial Services Register—where the registration status, if any, of individuals and entities can be reviewed (click here to access the register). FCA’s register is similar to NFA’s Background Affiliation Status Information Center (BASIC; click here to access) and BrokerCheck by the Financial Industry Regulatory Authority (click here to access).